We’re talking more these days about the ways in which technology is intersecting with the financial world. For the most part though, this talk revolves around Fintech which is to say, essentially, how modern technologies can change and improve financial services and transactions. We don’t talk as much about technology when it comes to investment.
Few will be surprised to learn, though, that technology, and in particular AI and data analytics, are changing the ways in which people invest. Below, we’re covering just a few of the ways in which this is happening.
Data-driven trading systems
It may go without saying, but generally the main changes in investment relating to AI have to do with trading systems. And this isn’t necessarily new. A write-up in World Finance explains that automation was harnessed early in this industry in the form of “trading-bots,” which are algorithmic programs that use underlying rules and massive data analysis to conduct trades quickly and efficiently.
What is a little bit newer in this regard is the democratisation of automated trading systems. For a long time this sort of AI was available only to major investment bankers and hedge fund managers. More recently, however, the spread of open-source programs that offer similar benefits has helped make it possible for more people to tap into AI-fueled investment practices.
AI forex analytics
AI applications in forex trading are similar to those in ordinary stock investment, but it’s important to note them here specifically because they’ve made a significant impact already. For those who may not engage with the currency trade, it’s worth pointing out that the forex market dwarfs any and all stock markets in size and trading volume. According to Per FXCM Australia’s general guide, the average daily trading volume exceeds $5 trillion in total value. That amount accounts for numerous currency pairs related to economies all over the world.
That sort of size and spread within a given market has in the past, as you might imagine, led to a certain degree of unpredictability. However, some have suggested that an influx of AI systems that give forex traders better predictive abilities has actually contributed to a mild decrease in the overall volatility of the market. In short, AI has enabled a world of forex traders to become more accurate all at once.
Entry to new markets
When new investment markets emerge they tend to be particularly difficult to predict. The cryptocurrency market is perhaps the best recent example, having attracted a significant population of investors in just a few years despite the fact that it is extraordinarily volatile. Referring back to the aforementioned piece by World Finance, however, it appears that AI-based algorithms are already helping some traders to make better sense out of these brand-new types of investments.
One specific benefit when it comes to something new, like cryptocurrency, is that AI can also keep traders from making emotional decisions. Naturally the specific, data-driven trading recommendations improve upon human analysis. But where new opportunities are concerned people can sometimes have a greater tendency to be bold or hopeful, and make decisions they want to make. A data-based approach can help to ground investors in the decisions they should make.
As a final point, we should also make it clear that in most cases the AI systems and innovations discussed above are used to foster informed decision-making – not to make decisions for us. As much as an AI-driven system can clarify all different kinds of markets, even professional, high-volume traders can remain distrustful of a machine’s final decisions. It’s for this reason that currently, most big data in investments is used to gather information and make recommendations, leaving final decisions up to the human beings involved
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